"We have reduced the probability of the Fed implementing QE3 in September to 40%. The FOMC minutes (22 August) may provide clues on the timing and form of further easing measures."

Highlighed Points for the U.S. Include: 1) Waning business confidence will continue to weigh on hiring and investment; 2) Ample economic slack should restrain inflation and keep inflation expectations anchored; 3) The FOMC will likely embark on QE3 in response to persistently high unemployment and greater downside risks in H2 2012; 4) Europe’s debt crisis and the looming “fiscal cliff” should continue to weigh on growth through the rest of 2012; and 5) We expect policymakers to act after the election to avert the effects of severe fiscal tightening scheduled to begin in 2013.

NOTE - This morning, economic data reported includes: a) July Leading Indicators up 0.4% vs. consensus of +0.2%; b) University of Michigan Consumer Sentiment was 73.6 vs. consensus of 72.2.